The importance of diplomatic expenditure on Maltese exports

Abstract

In spite of its geographic size, Malta has recently seen an increase in the addition of new embassies abroad. These embassies serve a variety of political, consular, and economic activities. This dissertation focuses on the latter point, by inspecting the links between embassies and exports, specifically by analysing the relationship between Malta’s exports to a partner country, and Malta’s embassy expenditure for that country – used as an analogue for the presence and weighting of the embassy. In order to do this, a modified Gravity Model of Trade was applied to empirically determine any possible systematic association between the two. Therefore, this dissertation has the secondary purpose of demonstrating the degree of relevance a Gravity Model has for Maltese trade. Interviews were also conducted with a number of embassies in an effort to complement the interpretations of the statistical results obtained. Three consecutive cross-sections for 2017, 2018, and 2019, each comprising 25 embassies, were used for the analysis. Findings suggest that Maltese embassies are indeed linked with higher exports; however, this cannot be definitively concluded due to the insignificance of the overall model. Furthermore, the Gravity Model could not be entirely validated using the current trading data, with a variety of reasons attached to Malta’s unique geography and standing being proposed as an explanation for this.